Online ad wars heat up with Yahoo purchase of ad space exchange

Yahoo Inc. has announced it will buy the remaining shares of Right Media Inc., which operates an exchange for remnant online ad space. While only about 20% of online advertising falls into the leftover category, at least one analyst says Yahoo’s heft will help educate advertisers and web publishers about ad exchanges and make it a more common way Internet space is sold.

“If you fast forward three years or more, the exchange model will become the primary way media is bought,” says Shar VanBoskirk of Forrester Research Inc., a research and consulting firm. “This will give Right Media a little more credibility and a parent that will help them educate the market about the way an exchange works.”

Ironically, she says that could benefit Google, which earlier this month announced plans to buy DoubleClick, an online advertising company that has announced plans to build its own ad exchange. VanBoskirk says DoubleClick “is an incumbent brand with a lot of existing relationships with advertisers and publishers. DoubleClick is well positioned to come in and take advantage of the work that Right Media has done.”

Nonetheless, by investing $680 million to buy the 80% it did not already own of Right Media, Yahoo is sending a message to arch-rival Google, says Mark Simon, vice president of industry relations for search engine marketing firm Did-it Search Marketing. “This will definitely say that Yahoo is in the game; they’re here to stay.”

VanBoskirk says about 44% of online ads sold today are categorized as premium positions, such as the home page of a major publisher like the New York Times, and another 35% is mid-tier, or lower-priced space, such as on the Times’ automotive page. The remaining 20% falls into the lowest priced remnant category, and are sold at discount prices or on exchanges like Right Media Exchange.

Yahoo, which took a 20% stake in Right Media last fall for a $45 million investment, says it has tested the Right Media Exchange with some of its own unsold ad inventory in the past few months and seen revenue from that inventory go up roughly 50% when sold in an open marketplace, Yahoo chief financial officer Susan Decker told analysts in a conference call yesterday. She also said nearly 1,000 web publishers actively use Right Media’s exchange, and that the company expected to generate revenue of $70 million in 2007, which would have more than doubled last year’s revenue.

Decker said Yahoo is paying for Right Media half in cash and half in Yahoo stock. The deal is expected to close in the second or third quarter. Right Media, a privately held company, was founded in 2003 by Michael Walrath, who remains its CEO.